State laws differ on when you must have Worker's Compensation Insurance. The threshold normally is expressed as the number of employees, such as three or more (as an example). Your insurance agent can give you the straight poop for your individual state. JD

In most States like Hawk said you need to have at least 3 employees for it to be required BUT as it was explained to me one small accident and you could be working for your employee for the rest of your life. Simple choice for us! We pay out on the amount of payroll per year.

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Yes, I'm sure you could find someone to do it cheaper but will you be happy after you do?

The first year premium is based upon your estimate of payroll. After expiration the Insurance Company will send an auditor to look at your payroll records (this is likely for a new account no matter the size). In subsequent years they may send a Voluntary Audit form to be completed and returned by your CPA. They may or may not have a auditor come back at some point.
After the audit is complete, they will refund premium or invoice for additional premium depending upon how accurate your estimate was.
Make sure you know the rate per $100 of payroll so you can set aside $ to pay additional premiums if your payroll exceeds the estimate. Just one of the headaches that come with employees. Also another consideration to take into account as far as bidding jobs, adds to your overhead.
Southern Lawns is correct, you can be sued, but that's a whole different story outside the scope of your question. JD